WorksheetsForeign Direct Investment
Total questions: 15
Worksheet time: 10mins
What is Foreign Direct Investment (FDI)?
A firm invests in government bonds of foreign countries
A firm invests in local businesses within the home country
A firm invests directly in new facilities to produce or market in a foreign country
A firm invests indirectly in foreign stocks
Which of the following is an example of Greenfield investments?
Amazon buying a logistics company in Brazil
Google setting up a new office in France
Apple acquiring a software company in Japan
Microsoft merging with a local company in India
What is an advantage of Acquisition over Greenfield investments?
Acquisitions are slower to execute
Acquisitions are quicker to execute
Acquisitions are riskier than Greenfield investments
Acquisitions allow firms to have tight control over operations
Why is FDI favored over Exporting?
According to the Eclectic Paradigm by John Dunning, what are Location-specific Advantages?
Advantages that are not valuable to the firm
Advantages that are only valuable in the home country
Advantages that are tied to a particular location
Advantages that are not tied to a particular location
What is the Radical View on FDI?
MNEs exploit host countries for the benefit of their home countries
FDI increases overall efficiency of the world economy
FDI should be distributed based on comparative advantage
FDI is beneficial for host countries
What are the Resource-Transfer Effects of FDI on the host country?
FDI has no impact on the host country
FDI leads to adverse effects on the balance of payments
FDI brings capital, technology, and management resources
FDI brings jobs that would otherwise not be created
What are the Adverse Effects on Competition in the host country due to FDI?
Foreign MNEs have no impact on competition
Foreign MNEs may have greater economic power than local competitors
Foreign MNEs do not affect competition in the host country
Foreign MNEs have less economic power than local competitors
What are the Home Country Benefits of FDI?
Negative employment effects
Outward flow of foreign earnings
Loss of valuable skills from foreign markets
Capital outflow required to finance FDI
What is the purpose of Encouragement Inward FDI by host countries?
To restrict foreign firms from investing
To maximize resource-transfer and employment benefits
To eliminate double taxation of foreign income
To encourage outward FDI
What is the effect of Outward FDI on the home country's balance of payments?
Increase in exports
Negative impact due to initial capital outflow
Positive employment effects
No effect on the balance of payments
What is the purpose of Restricting Outward FDI by home countries?
To restrict firms from investing in certain nations
To promote international production
To cover foreign investment risk
To encourage firms to invest in developing countries
What is the Free Market View on FDI?
FDI is an instrument of imperialist domination
FDI should be distributed based on comparative advantage
FDI increases overall efficiency of the world economy
FDI should be allowed only if benefits outweigh the costs
What are the Employment Effects of FDI on the home country?
Increase in unemployment
Positive employment effects
Negative employment effects
No impact on employment
What are the Balance of Payments Effects of FDI on the home country?
Negative impact if FDI serves the home market from a low-cost location
Positive impact due to initial capital outflow
No effect on the balance of payments
Increase in exports
